Women in Business and the Role of Business Schools

“We cannot change what we are not aware of, and once we are aware, we cannot help but change.”
– Sheryl Sandberg (COO of Facebook)


Last week, I reflected a lot on the implications for management education from growing gender equality. And how I spent my time last week will tell you why.

On Monday, colleagues and I met with two admirals from the U.S. Navy to start a dialogue on a range of deep human resources questions, most of which grow out of the increasing diversity of people in the service. The U.S. military has led the liberalization of American society, at least since President Harry Truman desegregated the military after World War II. Today, with the collapse of “don’t ask, don’t tell,” and the advent of women into combat positions, the military is again spearheading change for the rest of American society. This will challenge old attitudes. For instance, women will begin serving on fast attack submarines in January 2015. With women on shipboard in very close quarters, the respect for differences will need to be a paramount value in support of the team and its mission. The Navy wants to instill a culture of respect for gender differences.

That same day, I hosted Lorna Donatone, Chief Operating Officer and President of Sodexo Education. She leads Sodexo’s business at nearly 500 public school districts and at more than 850 college and university campuses, overseeing the work of more than 70,000 employees. She has worked to develop Sodexo’s Employee Network Groups, demonstrating her commitment to diversity, inclusion, mentorship and training managers and employees.

On Tuesday, I met with UVA President Terry Sullivan to discuss faculty appointments. She is a courageous and wise leader. And she is a great ally in recruiting diverse colleagues.



On Wednesday, I joined Valerie Jarrett, Senior Adviser to President Obama, and 13 deans of leading business schools at The White House. The purpose was “to discuss the best practices for business schools to prepare their students for the increasing importance of women in the labor force and the prevalence of employees with families where all parents work.”


On Wednesday and Thursday, in the boring interstices of commercial airplane travel, I read Sheryl Sandberg’s Lean In. Very well-written, inspiring, and provocative, the book argues that women are conditioned to “lean away” from professional confrontations in which they would have positive impact were they to seize their place in professional life. This book has important lessons for business educators and leaders.

So, connect the dots of my week: gender diversity is top-of-mind for prominent leaders. It has been on my mind as well: what are the opportunities and challenges around advancing women into positions of leadership in business? What should business schools do about them? While these are big questions, at the White House meeting of deans the other deans raised even more questions about how business schools can play a role in furthering women in business. The answers aren’t simple, but bear with the discussion that follows.

The White House Meeting of Deans

This was framed as a 90-minute discussion among the Deans of business schools at Harvard, Virginia (Darden), Northwestern (Kellogg), Michigan (Ross), Cornell (Johnson), Texas (McCombs), NYU (Stern), Berkeley (Haas), UCLA (Anderson), UNC (Kenan-Flagler), Emory (Goizueta), Carnegie Mellon (Tepper), and Yale. The Deans included four women and ten men. Shortly before the meeting, we were given a list of discussion topics and questions, any area of which would be the focus for a full-day’s conversation—the headline topics were these:

  • Business school timing and the lifecycle: Given the typical profile of a business school student—5 years of post-college professional experience—means that they are often considering having children shortly after finishing their MBA and many may feel that they must postpone having children to get enough years of post-MBA experience. Is this issue raising challenges for female students? Is it raising challenges for men who are increasingly likely to be active co-parents?
  • Retention: Failing to retain female talent is a growing challenge for businesses. It is also a growing problem among men whose obligations regarding work-family balance are shifting. Is there a role for business schools in helping alumni stay connected to their careers? Or to help them reenter after a period out?
  • Pay gaps and career success: How can business schools help address the pay gap between men and women with MBA degrees?
  • Culture: Research has found that women are less likely to re-frame ethical dilemmas to their advantage and instead see them as ethical issues (Kray and Haselhuhn 2012). They also find that women associate business with immorality more than men do. Is there a role for ethics training in helping men and women have more similar outlooks on ethical dilemmas? Are there better ways to teach ethics to make business more welcoming to women?
  • Leadership: How do you broaden the vision of leadership for all students, male and female?
  • Curriculum: How are men and women portrayed in course materials? Has your curriculum adapted to reflect the modern workforce and workplace challenges?

The discussion took a rather free-wheeling path of its own: we touched on some of the agenda questions, but did not reach alignment of opinion. Valerie Jarrett promised the development of a white paper about best practices that would become available to all business schools. I noted a number of interesting points–rather than quoting the attendees or paraphrasing the discussion points I offer them in the form of questions for future consideration. Given the diversity of views at the meeting, readers of this blog will find these points debatable, as I do.

  • In the entire field, there remains a relatively small percentage of case studies that feature women protagonists. What percentage should we aim for? Given that case content turns over 20% per year, how soon should be expect to see significant curriculum change?
  • Should we take gender off the table? Men vs. women is too binary, when what we should do is to consider what all leaders need in coaching and development. Can we “take gender off the table”? The best research in leadership indicates that effective leadership behaviors (Kouzes and Posner) and the stages of leadership development (Joiner and Josephs) are not gender-specific, but are due in part to socialization. Women and men may practice leadership (or be perceived) in different ways. The compelling question is, what do all leaders need in coaching and development? How does gender affect leadership development?
  • Do we really need to teach women to talk more like men? Shouldn’t we teach everyone to talk without bias? And shouldn’t we celebrate individuality?
  • Isn’t the issue really about diversity and inclusion, rather than gender? What role does gender play in the diversity and inclusion conversation?
  • The biggest diversity problem is not the difference of genders, but social class. MBA programs draw mainly from the upper middle class. Shouldn’t we commit to enrolling more women from the bottom quartile of the economic scale?
  • Leadership development requires that we reach out earlier in the pipeline of professional development. If you ask undergraduate students when they decided to become business majors, boys will say “high school,” and girls will say “college.” What will it take to help young women to crystallize their aspirations earlier?
  • Feedback in gateway courses motivates women differently from men: a ‘B’ in introductory accounting will drive women into marketing; men might get a ‘B’ and still go into investment banking. How can we frame early-stage feedback in ways that doesn’t peremptorily drive women out of certain fields?
  • What does it mean to be a leader? If we equate “leader” with “CEO,” the majority of leaders today are men; it doesn’t mean that they are great leaders. What do we really know about traditional characteristics of leadership? Do such characteristics include empathy and the ability to listen, the ability to question assumptions and ask big questions? [1]
  • Undergraduate business is the biggest major in the U.S., with about 50% women. MBA programs are about 33% women students; pre-experience masters programs are about 50%. Part-time and EMBA programs are seeing the entry of very talented women into the professional path. Is the challenge of recruiting women into MBA programs a lifecycle issue around child-bearing? Could we also improve our facilities to support women with young children or that are pregnant with flexible class schedules and/or child care?
  • Re-entry after child-bearing is difficult and fraught with anxieties. The woman wonders: am I capable, ready, and valued? Here’s where emphasis on skills (to build confidence) and mentoring (to handle anxiety) can make a huge difference. She can’t go from zero to sixty in one step; it takes a process of lengthening, frequency, and deepening of contact. The challenge for business schools is to consider how they can prepare and help alumnae to re-enter the workforce following time away to have children.
  • The pay gap requires more transparency and research. Women and men negotiate for pay differently. The issue of negotiation must be broadened to include advocacy and self-promotion. We don’t see enough of advocacy, not just on pay, but also on achievement and career advancement.
  • Is retention more about values than pay? 40% of women in computer science leave because they don’t like the climate in that field. Trust in business is at an all-time low. Isn’t the issue to help build purpose-driven firms? Do women prefer to work in purpose-driven organizations? Do traditional business organization climates drive women away?

The Opportunity

Extraordinary leaders like Terry Sullivan, Lorna Donatone, Valerie Jarrett, and Sheryl Sandberg don’t simply spring out of thin air. It takes decades of training and experience to develop strong leaders. Schools have a vital role to play.

The presence of women itself is hugely transformational—on business and on the schools that train women leaders. As Voltaire said, “God is on the side of big battalions.” The more women who are present, the greater their impact. Simply increasing the numbers of women MBA graduates (the “output”) requires many more applicants (the “input”). Why women aren’t flocking to graduate b-schools is the subject of many theories and rather less research. My guess is that more financial aid and better messaging would help to build the volume—and ultimate impact.

Our experience at Darden shows that even modest increases in the enrollment of women can have a transformational impact on the character and culture of the educational program. Greater representation of women in classrooms, learning teams, and project groups changes the conversation: richer, more diverse, and greater respect for differences. Students (women and men) report higher levels of satisfaction with the learning experience. Faculty report better classroom and team results. And corporate recruiters report greater satisfaction with the pool of talent they encounter. The experience at Darden is confirmed by empirical research elsewhere, some of which was offered as background reading to this meeting.

The Challenge

It would seem that one path to better outcomes would be to enroll more women. Now consider the following:

  • According to the 2010 Census, some 916,000 women graduated from college in 2009; but only about 80,000 women take the standardized entrance exam for graduate business school.
  • Women constitute about 57% of all undergraduate students in the U.S., but only 43% of examinees of the entrance exam for graduate business school.

The following provides a rough estimate of the relevant female applicant pool for the schools gathered for the White House meeting. These data are drawn from the Graduate Management Admission Council (GMAC), which administers the Graduate Management Admission Test (GMAT). Of greatest relevance are the percentages reported by GMAC in Column C—treating these percentages as independent effects gives a lower-bound estimate since the effects are unlikely to be totally independent of each other. Unfortunately GMAC does not easily allow determining the degree of interdependence. This is an opportunity for further research.

Line Group (Column A) Volume (B) % of Line 1 (C) Notes (D)
1 Total Tests Taken by Women 101,336
2 Unique Examinees – Women 81,069 80% Unique examinees were 80% of total tests taken in 2012-13 test year
3 Considering MBA 50,263 62% 62% of GMAT examinees want to apply to MBA programs
4 Considering Full-Time 33,676 67% 67% of those considering MBA want to enroll in full-time programs
5 Scored 640+ 6,062 18% 18% of those considering MBA scored 640+
6 4-9 years of experience 2,122 35% 35% of those considering MBA have 4-9 years of experience

Of the 81,000 women who take the test, only 50,000 have made the decision to apply to an MBA program, of which only 34,000 are considering attending a full-time MBA program. Of these some 6,000 women offer academic potential generally consistent with the admission “sweet spot” of schools at the White House meeting. Taking into account the traditional years of work experience (row 6), leaves about 2,000 candidates. Even if you relax the expectation of years of work experience, the resulting numbers of candidates are small relative to the aspirational enrollment of leading schools. And even the 34,000 women considering a full-time MBA program (line 4) is small relative to the 633 AACSB-accredited institutions in the world (which would yield 54 women per class).

One general conclusion is that if we are to achieve the benefits of enrolling more women in MBA programs, we need more women applicants. Change will come slowly.

Here is some history. The 20-year GMAT volume time-series shows growth in tests taken by women both in absolute number and percentage of total. (GMAC does not report data about unique test-takers, but says that the number of unique test-takers is from 80 to 84% of total tests taken in the years since 2008-09.) The GMAT volume does not directly translate to b-school application volume, especially since GMAT-takers today have many options beyond the MBA degree. Still, from these data, we can infer that more women are applying to b-schools now, at least as a percentage of total b-school applicants, than 20 years ago.



The growth rate in women taking the GMAT is faster than for men. Over the past 10 years, the compound average growth rate for men was -0.06%; for women +1.72%.

Increasing the representation of women in business school programs would enhance the educational experience of both men and women. Achieving this is constrained by the small numbers and proportion of women seeking education in business. Therefore a priority should be to increase the pool of qualified applicants. Actions to support this priority could include:

  • Improve K-12 education to promote entry into, and graduation from, undergraduate programs.
  • Intensify outreach from undergraduate and graduate business schools to undergraduate students.
  • Expand public and private financial aid for women students.
  • Promote programs that help undergraduate women transition into business careers. These include short certificate programs and one-year “Masters in Management” programs to be taken immediately after undergraduate school.
  • Relax H1-B visa requirements for international women seeking to work in the U.S. upon graduation from MBA programs.


The various conversations and readings last week reaffirmed for me the importance of how business schools frame their work to prepare leaders for a society of growing diversity. Sheryl Sandberg got it right: witnessing the growing diversity of enterprises and organizations is a wake-up call to all leaders. Standing still is not an option. The stories and initiatives of which I heard at the White House suggest that all b-schools are moving. And the pace of change within schools may seem unequal to the challenge:

  • Extraordinary leaders like Terry Sullivan, Lorna Donatone, Valerie Jarrett, and Sheryl Sandberg don’t simply spring out of thin air. It takes decades of training and experience to develop strong leaders of either gender. Schools have a vital role to play.
  • The presence of women itself is hugely transformational—on business and on the schools that train women leaders. Growing diversity will have a staggering impact on organization cultures (imagine the leap the Navy will make with the introduction of women on submarines.)
  • One size does not fit all. A growing body of empirical and anecdotal evidence shows that women and men experience school in different ways. Research indicates that women experience the learning process differently than men (see, for instance, Women’s Ways of Knowing the cornerstone study in this area). Shaping the learning experience that best serves the development of women and men is the focus of quite a lot of experimentation at b-schools today—Darden’s experience and the conversation at the White House meeting suggest avenues of such experimentation.
  • It’s a marathon, not a sprint. Women will slowly increase as a percentage of all business students. The response of graduate business schools today will start to have visible impact in society in maybe a decade.
  1. Are we not after a new style of leadership, one that combines characteristics of what might be considered as feminine and masculine characteristics? See, for instance: http://www.johngerzema.com/presentations/tedxwomen-talk and http://www.johngerzema.com/books/athena-doctrine. []

My Transition to Come: Dean to Professor

Yesterday, UVA President Terry Sullivan announced my intention to transition back to Darden’s faculty at the end of my second term as Dean, July 31, 2015. I call on the Darden Community to support the Dean search process with advice, nominees, good will, and the patience that a major executive search demands. The Search Committee will be chaired by Professor Ken Eades and is chartered by UVA’s Provost, John Simon. Their search process will be thorough, professional, and engaging of all of Darden’s constituencies. Given the healthy lead time, I’m confident that the search will be a success.

My choice to return to teaching and writing was the result of a lot of personal reflection and discussion with family, colleagues, alumni, and, of course, the President. It’s been no secret: most colleagues have known about my intention since 2011. But the most frequently asked question is this: if I’m happy and Darden is in a good place, why let up? Here’s my thinking:

  • We’ve finished much of what I hoped we would achieve when I accepted the deanship in 2005. Darden has challenges and opportunities ahead–and the school is in great shape to meet them: the world’s best faculty (say several rankings); distinguished Grounds; devoted alumni; transformational learning experience; awesome students; and large endowment. I didn’t accomplish all that; the whole community did. I’m just pleased to have had a voice in the chorus.

  • I love to teach and write, for which I entered academic life. Being Dean is quite exciting but crowds out the deep reflection required to teach, research, and write very well. And it takes a heavy commitment of time and energy to advancing the school–I’ve averaged 145 days out of town per year for the past nine years.

  • Ten years is a nice round number—think of it as the “Goldilocks” tenure, long enough to have an impact, and short enough to ensure fresh perspective with some regularity. In comparison, the median tenure of a business school dean is about four years—this is not long enough to drive real change in academia. And what a ten years it will have been: Global Financial Crisis, Great Recession, the events of June 2012, Capital Campaign, EMBA, GEMBA, diversity, sustainability, globalization, MOOCs, and more.

  • Darden houses impressive talent and has good depth of leadership. The rising faculty and staff leaders are stars. I’m confident that they will sustain Darden’s momentum and good direction.

In view of these, and of the fact that I’ll be 65 in October, this next year seems like a good pivot point in my own journey. It’s been a deep honor and very fulfilling to serve Darden for a while as Dean.

Onward and upward!


Learning by Doing and Persevering

“Education is a choice. We don’t become educated by watching television, and we don’t learn a whole lot having similar conversations with the same, safe people day after day. Our education comes from pushing up against boundaries, from taking risks that may seem at first to be overwhelming, and by persevering past the first disappointments or shortfalls until we reach a point at which actual learning takes place. Determination and perseverance are absolutely vital to developing a true education–rarely, if ever, do we learn the most valuable lessons in the first few steps of the journey.” — Tom Walsh

These words came to mind as UVA’s ACC tournament championship culminated in an exchange of emails between Kathryn Sharpe, Assistant Professor at Darden, and me. The subject: why do we play games as part of an educational experience? Our answers echo Tom Walsh.


Games are all around us. UVA topped the Atlantic Coast Conference in basketball this winter and is going into March Madness with elan. Recently, my wife and I  hosted a group of first-year students to our home for dinner and a game of Monopoly.  Everyone played earnestly and with a lot of humor.


In the picture, the students holding the bottles of bubbly had amassed the lion’s share of the assets when the clock ran out—and everyone (re)learned some lessons about liquidity, solvency, risk, and return.

Darden and its peer schools are doing more with games and simulations in courses as well.  We do this not because it is fun (yes it is) or because our students need to gain a winning mindset (they generally bring that already); rather, we use games and simulations as a device for learning from failure. To fail in the classroom is relatively safe and inexpensive. If students are able to let go of what they perceive to be the risk to their social capital, they will realize that they have paid their tuition so they may fail, learn, and avoid the mistakes in the future, where it counts.  If they do not take these risks here, they are not fully taking advantage of their time and tuition.  Failure is a powerful teacher.   Michael Jordan, perhaps the best basketball player in history, said, “I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”


As a junior faculty member, it occurred to me this year that academia involving research results, journal publications, and course evaluations is about 90% rejection (failure) with 10% success. These are rough odds.  I have begun contemplating, do I learn from my 90% failures to achieve the 10% success?  If I did, would my success rate inch up by a percent to 11%?  Am I fully benefiting from my mistakes?  As I urge students to embrace the risk of “failure,” these are all good questions to entrust to my own heart.

Our first year students are about to participate in the most comprehensive simulation experience that they have undertaken at Darden with every student team to compete with each other to win, as a virtual company, at a new car launch. It requires our students to integrate everything they have learned during their first year of coursework: accounting, operations, marketing, and strategy, and finance (their choices to launch a new car platform even impact their virtual company’s stock price in the simulation). As the students will be working with their peers, the learnings from the Leadership & Organization course are critical to winning, if not at this weeklong game, at life.  Historically, the students have loved this week long simulation and benefit from it greatly.  Although we learn from the “winners” (each student team debriefs its strategy at the end of the week to its peers), the class tremendously values the experience of the “losers.” The ability to “lose” graciously, laugh at oneself, and learn at the same time, is beautiful.

In addition to failure being such a great teacher so is illness. As I have contended with two serious health diagnoses over the last year, I realize that I am not super-human, that my body has limits, and that the people around me, including my colleagues and students, are supporting me. I have learned that my fellow team members will pick up the slack for me when I have fouled out, leave me room on the bench to catch my breath, and include me in their successes even though I have not done much to contribute to their win. The lesson that I am valued here beyond what I produce or how I am used would have come through no other way than through illness. Having just finished up a six month journey of medical treatment on Friday, I have the opportunity to get back in the game – leading my students through their weeklong simulation this Monday. I am grateful for the opportunity to be able to celebrate their successes and appreciate, on an even deeper level, their perceived failures.


We play games and simulations in order to carry our students well beyond mere knowledge acquisition. The world needs MBA graduates who can deal with ambiguity, take sensible risks, and interact with others professionally—even when the conditions are stressful. Games and simulations help to model the complexity that decision-makers face. Here one confronts the fact that it is not the greatest intellect or talent that succeeds, but rather, the person who perseveres. Tom Walsh got it right: “Determination and perseverance are absolutely vital to developing a true education.”

So it is with an illness. So much about recovery and wellness requires determination and a positive attitude. Kathryn, you’ve shown these qualities. Welcome back!

And welcome back to our students. A great conclusion to the academic year lies ahead. Give it the determination and perseverance it deserves.


Higher Education as a Winners-Take-All Market: Effectual Thinking versus the Treadmill

In my last blog post, I profiled the attributes of “winners-take-all” markets. And I implied that such markets might be closer than you think. Well, they are for me.

Higher education is a winners-take-all market. Despite the cool indifference to competition that many academicians affect, the competition among colleges and universities is serious. Aside from the fact that most people want to belong to a community that matters in some respect, some faculty, staff, parents, students, alumni, governments, and media mavens ask a provocative question: “Why strive?” In other words, why should institutions keep piling on the investment in programs, faculty compensation, facilities, and the like? Isn’t the institution of X years ago sufficient to the mission? The winners-take-all concept helps to explain what’s going on, and presents a rather depressing outlook. But I think there is a way out of the morass. Let me tell you how and why.

The Self-Reinforcing Cycle in Higher Education

To start with, consider the evidence that higher education is a winners-take-all market. The two most prominent attributes of such markets are that (1) assessment is based on relative, not absolute, performance, and (2) that rewards are concentrated in the hands of a few top performers. Higher education models these attributes well.

Relative assessment. In a world of absolute assessment, a college or university would ask itself, “Did we fulfill our mission? How well did we do it?” In this world of relative assessment, the question would be, “How well did we do it compared to a benchmark of other schools?” That institutions compare themselves to other schools is no secret: most collegiate associations provide databases by which leaders can easily make such comparisons. More importantly, many external sources provide ratings or rankings, some followed by millions of readers. (In previous blog posts I have criticized the rankings (see this and this).) Despite the criticisms, we know that people pay attention to these relative assessments: material changes in rankings seem to trigger material changes in the volume of applications for admission, philanthropic gifts, media attention, and the success of faculty recruiting efforts. For instance, a study by Michael Luca and Jonathan Smith found, “a causal impact of rankings on application decisions. When explicit rankings of colleges are published in U.S. News, a one-rank improvement leads to a 1-percentage-point increase in the number of applications to that college.” Forbes Magazine reported, “Just as an analyst’s upgrade can spark a rally in a specific stock, a college’s move up the rankings usually results in a financial windfall. “There’s institutional pressure at colleges to achieve at all levels, and that includes rankings,” says Troy Onink, a college planning expert and FORBES contributor. “It’s a hypercompetitive world for the best students and for that tuition revenue.””

Concentration of rewards. To the victors belong the spoils. In the previous post, I characterized the payoffs in winners-take-all fields as highly asymmetric (to math geeks, it might look like an exponential growth curve): the winners get a lot and the rest get a little. Here are some examples.

Textbook sales, Ph.D. production, and article citations. In his seminal article on the winners-take-all phenomenon (“The Economics of Superstars,” 1981), Sherwin Rosen wrote, “sales of elementary textbooks in economics are concentrated on a large group of best sellers, though there exists a large number of very good and highly substitutable alternatives in the market (the apparent inexhaustible supply of authors willing to gamble on breaking into the select group is one of the reasons why so many are available). A small number of graduate schools account for a large fraction of Ph.D.s. A relatively small number of researchers account for a large fraction of citations and perhaps even articles written.” (p. 845).

Admissions selectivity. “Reward” could also be measured by the ability to recruit excellent students. Consider some evidence from US business schools. One metric would be the selectivity ratio of admissions (the number of offers of admission divided by the number of applicants). This graph shows that the higher the rank, the more selective the admissions.


Another aspect of selectivity would be the ability to attract students of high academic promise. The following graph relates the average GMAT test score by ranking group (the Graduate Management Admissions Test is the leading standardized admissions test in the field). The graph reveals a strong association between rank and test score.


Of interest here is the association between rank and selectivity or average GMAT score. As the following table shows, the correlation percentages are high by typical experience in social sciences. (Note that BusinessWeek does not use the GMAT and selectivity ratios in computing its rankings.)

GMAT Score Admission Selectivity
Correlation with Ranking Groups -91% 85%
Correlation with Rank of Individual Schools -81% 66%

Ability to command premium prices. Another way to consider concentration of rewards is to look at the ability of a school to command a high price for its degree program. Sure enough, as the following graph shows, there is an association between ranking (judging business schools on relative, not absolute, performance) and rewards: as ranking falls, so does price.


Program revenue. Or, you can see concentration of rewards in terms of total revenue of an MBA program. Revenue measures both the ability to command a high price and to attract large numbers of students at that price.


Research hits. Business schools also display a strong asymmetry in research productivity. Here is a graph based on rankings and research publications collated by the University of Texas—Dallas.


Federal Government Research Grants. In its annual report for 2011, the Center for Measuring University Performance presented evidence of a strong winners-take-all phenomenon in the ability of institutions to attract federal grants. Here are some excerpts:

A relatively few top performers among research institutions control a large percentage of the market and this concentration remains stable over time….This distribution is a little more unequal than the most unequal country income distribution in the world.((“The Top American Research Universities” 2011 Annual Report, the Center for Measuring University Productivity, pages 3-9))

Endowment. The ability to draw philanthropic gifts to support the school is another measure of the distribution of rewards. Nothing succeeds like success. The leader in the field, Harvard University, just announced the commencement of a $6 billion capital campaign.


Other. I will assert (and leave it for others to research) that in addition to pricing and research grants, higher education displays winners-take-all attributes in respect to faculty prominence, physical facilities, media attention, and so on.

You get the idea. Institutions of higher education in America are subject to strong winners-take-all forces.

Implications: The Self-Reinforcing Cycle

Students of the winners-take-all phenomenon point to feedback effects by which strengths reinforce reputation which reinforces strengths. You get to be known as a winner which draws attention, strong students, leading faculty, happy alumni, growing research grants, and big donations. This is a self-reinforcing virtuous cycle.

Of course, the cycle can work in reverse. Some shock triggers doubt and disbelief in the school—perhaps it’s a tragic shooting, wave of exam cheating, sexual abuse, NCAA violations, a loss of accreditation, a governance crisis, or faculty strike. Or perhaps it is an external event such as a market crash that wipes out a school’s endowment or the advent of new technology. In a recent interview, Rich Lyons the Dean of UC Berkeley’s Haas School of Business was quoted as saying,

“Half of the business schools in this country could be out of business in 10 years—or five,” he says. The threat, says Lyons, is that more top MBA programs will start to offer degrees online. That will imperil the industry’s business model. For most business schools, students pursuing part-time and executive MBAs generate crucial revenue. Those programs, geared toward working professionals, will soon have to compete with elite online alternatives for the same population.” [1]

As applications, quality of students, donations, and affirmative media coverage fall, so do rankings. And the cycle continues: more doubt and disbelief; more declining relative performance; fewer rewards. The school stalls, and then nose-dives. This is a self-reinforcing pernicious cycle.

Given a choice, most academic leaders will strive to place their institutions on the self-reinforcing virtuous cycle. Such striving explains some part of the ongoing ample investment in people, programs, and facilities at business schools, colleges, and universities. America, in particular, has always been a society of strivers. Therefore, the behavior of higher education may seem to be a piece of the larger culture.

A Caution

But reaching for the virtuous may still result in the pernicious. Consider some possibilities.

Recruiting talent. A school seeking to rise in a winners-take-all field could alter its recruitment of faculty and students in an effort to look just like some schools higher up the food chain. The downside of this is to draw people into the community who may not share the values or sense of mission of the school. Or it may promote conformity. “Late bloomers” or oddballs may have something to teach their classmates either now or later—as the lives of Steve Jobs, Bill Gates, and Larry Ellison show.

Dumbing down the curriculum. A cynical way to recruit is to lower the standards of performance: less teaching for the faculty, grade inflation or lighter degree requirements for students. The term, “Mickey Mouse degrees,” gained currency in 2003 when Margaret Hodge, the UK Minister for Universities, faulted programs “where the content is perhaps not as [intellectually] rigorous as one would expect, and where the degree, itself, may not have huge relevance in the labour market…simply stacking up numbers on Mickey Mouse courses, is not acceptable.”

Gaming the system. The winners-take-all payoffs create a strong incentive to cheat. Recent news stories have reported the falsification of data reported to major collegiate rankings by Claremont McKenna, Bucknell, Tulane, Iona, and Emory (see this, and this). The 2012 survey of College and University Admissions Directors by Inside HigherEd found that “Nearly all institutions (99 percent) report that they have not falsified student admissions data; most (91 percent) report that they think other institutions have falsified such data.” (Pg.1)

Not Merit but… A high reputation could reflect momentum in terms of size, a media blitz to inflate a past legacy, social capital (or promise of membership in an elite community), influence, or wealth rather than real academic merit. The “stickiness” in the rankings, NSF league tables, and seedings in athletic competitions are not inconsistent with this. Which is the cause and which the effect? Do schools win relatively high reputations based on merit, or based on the “bling” one associates with merit?

Managing to the rankings. In an influential report on research universities, John Lombardi wrote, “If…the university emphasizes behaviors that influence the rankings elements but do not necessarily improve the performance of the institution, then the impact of the league table is negative. Even more significantly, if the importance of the league table in sorting institutions by reputation has an impact on access to resources or the imposition of government policies and controls, the influence of the ranking can easily become pernicious. Universities and other academic units ranked in these contests may also work to manipulate their data by strategies that give them a comparative advantage in the rankings unrelated to their actual performance. Other than simply submitting fraudulent data (which can happen and which is why good rankings are always transparent and provide all the data and calculations for public review), universities can pursue other strategies. If high scores on entrance exams figure significantly in the calculation of an important ranking, universities can divert funds to increase the scholarships used to entice students with exemplary entrance exam results to enroll. By buying students with better examination scores, the institution’s ranking will increase although the institution itself may not have become better.”((“In Pursuit of Number ONE” by John V. Lombardi, The Top American Research Universities, 2010 Annual Report, Center for Measuring University Performance, page 9.))

The Investment Treadmill. When an institution decides to compete in the winners-take-all competition, it commits itself to a path from which it may be difficult to depart and which will demand rising commitments. Perhaps this results from “striving” (mentioned earlier) or sunk cost thinking. Either way, the demands for investment can be impressive. Consider again the commentary from the CMUP report on research universities:

This competition is constrained by the structural characteristics of the marketplace. Within the top 150 to 200 performers, mostly the same institutions compete every year. This competition is an essential element of their institutional design and mission and they must participate to remain major research universities within the United States. Success in this competition is a function of investment and careful management of institutional subsidies over time.

Research is one of the university’s loss leaders. Almost no research reflected in this competition pays its full costs. Instead, the federal research expenditures reflect only a partial reimbursement of the institution’s investment in that research. Universities need to understand the opportunities and constraints of the research marketplace as they budget funds to subsidize competitive research activities…

…Another way to look at the structure of this distribution is to measure how much it would take to move the middle institution in each group to the midpoint of the group above it. The purpose of this kind of approach is to identify the challenge faced by universities that commit themselves to the investment required to make a major change in their competitive position…


These [comparisons] indicate the strong structure of this marketplace over the past decade and highlight the major effort needed to move an institution a significant distance within this competitive context.2011 Annual Report, the Center for Measuring University Productivity, pages 3-9))

Resisting the treadmill

The winners-take-all market in higher education poses an existential problem for educational leaders. The vast majority of institutions don’t display the attributes of winners and therefore have little hope of reaping the rewards to which they might aspire. The competition to excel and to join the small pool of winners is really intense. Aspirants keep elbowing into one’s competitive space. Overcrowding prompts heavier investment in an effort to get ahead, or just keep up with the crowd. Various constituents prod the leaders of the institution, demanding no relaxation of the race. Falling behind isn’t an option because just as there is a self-reinforcing feedback loop that helps schools as they rise, there is a vicious negative feedback loop that can suck schools downward. Strive for the good and avoid the bad—but resources are finite and burnout looms. By what reasonable strategy could a school respond to the winners-take-all market and survive?

The first priority must be to avoid the paths that are traps. For instance:

  • Continuing to invest heavily in technology, MOOCs, financial aid, faculty, buildings, amenities, and so on when the school can’t afford it. For the majority of schools the winners-take-all treadmill is unsustainable. It is useless to compete with competitors who have very deep pockets.

  • Doing nothing. In the face of the turbulent changes looming for higher education, standing still is not an option. Recall Rich Lyons’ prediction (see above). Or see a prescient article in The Economist, entitled, “Trouble in the Middle.”

  • Giving up. A school could simply surrender and close its doors. Ray Brown reports that some 74 American institutions closed since 2000—many multiples of that number merged into other institutions.(( http://www2.westminster-mo.edu/wc_users/homepages/staff/brownr/closedcollegeindex.htm)) Such harsh steps could be warranted for schools in depressed regions or that have lost their way. But this hardly serves the educational mission to which so many faculty and staff members are called; nor does it serve the wider constituency of any school.

  • Collusion. Frank and Cook, the authors of the Winner-Take-All Society, advise “positional arms-control agreements” to limit wasteful spending. This breaks the “prisoner’s dilemma” whereby competing schools realize their mutual self-interest and agree to a set of practices that ensure survival. The authors cite “redshirting” in college athletics, and the practices within the Ivy League that limit excessive spending on sports. The downside is that such agreements are easily broken by unruly upstarts—think of the oil cartel. Moreover, collusion can often descend into a restraint of trade, through price-fixing and conspiratorial admissions policies.

The other path

Find a defensible niche and work to dominate it. Recall that the problems with the winners-take-all market are overcrowding and positioning that is based on relative, not absolute, performance. Everything depends on how you frame your school’s identity, and thus by inference, how you frame the field it serves and within which it competes. Therefore, the other path would be to compete for relative position in a defensible, important, and possibly smaller field. This takes great clarity about mission and purpose. It is risky if you define your niche in a way that is unappealing to the constituents to whom you appeal.

One way to discover the defensible niche and manage the risks is to be “effectual.” My colleague, Professor Saras Sarasvathy, has studied “expert entrepreneurs,” people who started at the wrong end of the “winners-take-all” food chain and still created a winning outcome. She concluded that these people thought in a very different way compared to novice entrepreneurs, those more likely to fail than the experts. The chief difference was that the expert entrepreneurs thought in terms of effects or outcomes, rather than causal if-then logic. Saras offers an example: a chef focused on causation will plan a menu and cook according to what the customer is likely to eat; but a chef focused on effectuation will see what is available or “fresh today” and prepare the best meal with the ingredients at hand. Her theory of “effectuation” has had revolutionary impact on the way business schools train entrepreneurs. I believe that her lessons are also relevant to leaders in higher education, especially those who are bedeviled by a belief that the “winners-take-all” market is stacked against their institutions. At Darden, Saras’s principles have spawned a set of effectual pratices that help us to contend with winners-take-all.

In particular, Saras has highlighted five principles:

  1. “When expert entrepreneurs set out to build a new venture, they start with their means: who I am, what I know, and whom I know. Then, the entrepreneurs imagine possibilities that originate from their means.” Successful entrepreneurs don’t start with goals, they start with resources, capabilities or tools that are at hand. They focus on what they have, not with what they wish they had. They ask, “What can I do with what I have?” Think of the effectual chef—I suspect that parents cook effectually for their children more often than they might admit. For faculty and administrative leaders, this requires an absolutely fearless, sober, and candid assessment of the competencies of the institution. What are the school’s strengths? Take care that this assessment should be based on absolute, rather than relative, assessments of performance. The next step is to ask what the school can do to exploit these strengths. At Darden, we conduct an annual leadership retreat to explore these questions and frame new projects, experiments, prototyping, and design efforts with which to challenge ourselves. The incumbents and aspirants in the niche we define keep changing. Therefore, we don’t settle for a “once and done” definition of the service we give.

  2. “Expert entrepreneurs limit risk by understanding what they can afford to lose at each step, instead of seeking large all-or-nothing opportunities. They choose goals and actions where there is upside even if the downside ends up happening.” Launch first, profits later. The question that kills so many fledgling ventures is, “How much money will you make and when will you make it?” The reality is that no one knows. You must consider the launch of a start-up much like buying an option. You spend a little money to see what happens. If the initial results are nice, you spend a little more, and so on. Thus, the dominant questions that successful entrepreneurs ask are, “How big a loss can I afford? And what can I do to minimize that loss?” For faculty and administrative leaders, this probably means avoiding big-budget high-stakes bets, the academic equivalent of the moon shot, the Manhattan Project, or the D-Day Invasion. Instead, it probably entails making a range of little bets, seeing what pays off, and successively nurturing the winners. In this regard, I have previously recommended the book by Peter Sims, Little Bets: How Breakthrough Ideas Emerge From Small Discoveries. It is a delightful and provocative reading about the origin of innovation. At Darden, we have been using the theory of little bets very successfully in areas such as the development of MOOCs, field experiences, behavioral research, and communications and marketing.

  3. “Expert entrepreneurs build partnerships with self-selecting stakeholders. By obtaining pre-commitments from these key partners early on in the venture, experts reduce uncertainty and co-create the new market with its interested participants.” Partner early and often. Saras says, “Entrepreneurs cooperate with parties they can trust. These parties can limit the affordable loss by giving pre-commitment.” As the old Beatles song says, “I get by with a little help from my friends.” The social network can be powerful, not only for the financial resources it affords, but also for the doors it may open to other relationships. At Darden, we expanded our network of corporate partners and discovered a new circle of support that culminated in the founding of our Institute for Business in Society.

  4. “Expert entrepreneurs invite the surprise factor. Instead of making “what-if” scenarios to deal with worst-case scenarios, experts interpret “bad” news and surprises as potential clues to create new markets…Surprises are not necessarily seen as something bad, but as opportunities to find new markets.” The discovery of the wildly popular Post-It Notes® by 3M Corporation was triggered by the failure of an adhesive—the scientist simply tried an alternative application for the semi-sticky glue. If an initiative hits dead-end, the academic leader may be inclined to abandon it—if so, it is always useful to ask, “What did we learn from this? What can we do with what we learned?”

  5. “By focusing on activities within their control, expert entrepreneurs know their actions will result in the desired outcomes. An effectual worldview is rooted in the belief that the future is neither found nor predicted, but rather made.” So many of the dire predictions for higher education are fatalistic. I like Saras’s fifth principle because it reflects a spirit of self-determination. Applying this in an academic setting may require a cultural shift. A slogan among my colleagues at Darden is standing still is not an option. Whatever happens, we want to get on with realizing our highest potential.

Effectuation is relevant for higher education because it employs non-predictive strategies and thus allows one to create and grow in an environment of uncertainty and unpredictability. Predictive strategies in higher education are risky, because we can hardly foresee with any amount of confidence what higher education of the future will look like.

Saras Sarasvathy wrote, “Underlying all the principles of effectual reasoning is a coherent logic that rests on a fundamentally different assumption about the future than causal reasoning.  Causal reasoning is based on the logic, To the extent that we can predict the future, we can control it.  That is why both academics and practitioners in business today spend enormous amounts of brainpower and resources on developing predictive models.   Effectual reasoning, however, is based on the logic, To the extent that we can control the future, we do not need to predict it.” [2]

Conclusion: The future made

Today, higher education resembles a winners-take-all market.  To win is great, gratifying, and reinforcing.  But striving to be one of the winners is fraught with great difficulty: heavy investment, long duration with slow advancement, and serious temptations to err—it may place the school on a long and weary treadmill that is unsustainable and ultimately dangerous.  Fortunately, there is an alternative: find strategic advantage through defining a defensible niche in higher education by means of effectual thinking. To do this, an educational leader must stop seeing competition as a game or a “hunt” in the first place.  The point is not to “win” within an existing market but to “create” new possibilities and enduring value.  An effectual approach argues for a move away from a hunter-gatherer mentality of “the” education market and toward a more plural agrarian view of co-created niches that we will design and redesign into gardens we cannot even imagine today.

Note: I thank Asif Mehedi (D’12), research assistant, for effective and effectual contributions to this post. And I am grateful to Saras Sarasvathy for comments.

  1. “Half of US Business Schools Might Be Gone by 2020” Bloomberg BusinessWeek March 14, 2014. http://www.businessweek.com/articles/2014-03-14/online-programs-could-erase-half-of-u-dot-s-dot-business-schools-by-2020?campaign_id=DN031414) []
  2. Sarasvathy, S. D. (2001). “What Makes Entrepreneurs Entrepreneurial” Darden Business Publishing. []

When Winners Take All

“The Olympics is really my favorite sporting event. Although I think I have a problem with that silver medal. Because when you think about it, you win the gold – you feel good; you win the bronze – you think, ‘Well, at least I got something.’ But when you win that silver it’s like, ‘Congratulations, you almost won. Of all the losers you came in first of that group. You’re the number one loser. No one lost ahead of you!’”
— Jerry Seinfeld, from I’m Telling You for the Last Time (1998)

The 2014 Winter Olympics games are now behind us. The cascade of newly-created celebrities sparks a reflection about the winner-take-all phenomenon: the asymmetry of rewards, where the winner reaps an outsized share of the rewards in the game, leaving little or nothing behind for the others. This seems unfair, especially on behalf of those who trained thoroughly, played hard, observed the rules, and finished second…or last. And it is not hard to find examples. Olympic Gold Medalists benefit disproportionately from endorsement revenues, speaking fees, and the like. Think of the compensation of top performing artists, sports figures, and CEOs. Or, think of the windfalls to successful inventors, entrepreneurs, and Nobel Laureates. Think of Secretariat, ranked as the top race horse of the 20th Century—can you recall the also-rans? Think of the sheer dominance of Microsoft in computer operating systems, of Google in Internet search, or of New York and LA in respect to arts and entertainment.

When winners take all

Robert Frank and Philip Cook, in their classic book, The Winner-Take-All Society, wrote that the “winner-take-all markets translate small differences in performance into large differences in reward.” They identified a range of attributes:

    • A focus on relative, rather than absolute, performance. In most markets, the reward from your effort is based on how many hours worked or how many widgets produced—those are examples of absolute performance. But in some settings, absolute performance does not yield the reward; what matters is being better than competitors. The focus on relative performance differentiates the winner from the rest. The asymmetry of rewards to effort can lead to the dystopian frame of mind expressed by Gore Vidal: “It is not enough merely to win; others must lose.”
  • Concentration of rewards “in the hands of a few top performers, with small differences in talent or effort often giving rise to enormous differences in incomes,” as Frank and Cook wrote (p. 24). To help you visualize what this looks like, the graph nearby presents a hypothetical payoff across a range of 50 players on the basis of relative performance. Math geeks will recognize this as an exponential curve—the point is that the rewards are not flat across performance (pure equality) nor growing linearly (in common proportion across added units of performance). Rather the payoffs compound as units of relative performance grow.
  • Overcrowding. For every rock star, there are many thousands of “wannabees.” The focus on relative performance and resulting asymmetric payoffs tend to draw into the competitive field more contestants than may be warranted on any rational calculation of benefits and the probability of winning. Overcrowding causes the dilution of benefits to non-winners across a wider population. All of this leads to “tragedy of the commons” in that too many also-rans depress the per-capita compensation for them. Frank and Cook wrote, “the overcrowding problem in winner-take-all markets arises because participation in these markets is misleadingly attractive to individuals.” (p.21) They point to a variety of possible causes of overcrowding, such as overconfidence (a belief that you can beat the odds and win); thrill-seeking; status-seeking, and/or intrinsic joy in the activity (you love to sing opera in the shower and therefore audition for the Met).
  • The rise of mass-markets for some kinds of talent (e.g. prizefighting on cable TV) that makes it possible to reach a very large audience and leads to outsized purses to the winner.
  • Network effects can create winners who take all: consider that a product can become more valuable, the more people that use it. The fax machine is a prime example, as is Microsoft’s Windows software. Competitors in a market may be able to gain outsized rewards through the adroit use of network effects.
  • Lock-in or barriers to exit—path dependency. Microsoft Windows illustrates another aspect of winner-take-all markets: apparent customer loyalty might be driven by the cost and inconvenience of switching to a competitor. The customer is locked-in, assuring repeat sales and a strong market franchise. This produces what Frank and Cook call, the “Matthew Effect” (“For unto everyone that hat shall be given, and he shall have abundance; but from him that hath not shall be taken away even that which he hath.”)
  • Feedback loops. Being known as a leader may enhance your chances of remaining a leader in future rounds of competition. Think of the movie director who gets bankrolled on the basis of past film successes, or the Grand Slam tennis pro who gets top-seeding in subsequent tournaments. In business, the saying was, “you never get fired by buying IBM”—where you are less confidence in your own analysis, it may be easier to go with a well-known brand. Well-branded products can discourage buyers’ remorse. Of course, the feedback loops can work in a negative direction as well.
  • The emergence of “deep-pockets markets,” which Frank and Cook describe as “a small number of buyers intensely interested in the winner’s performance.” The market for expensive art, yachts, and professional services such as law, asset management, or investment banking. Customers in these markets want the very best and are relatively price-insensitive.
  • Markets for status or positional goods. The economist, Thorsten Veblen, first identified “conspicuous consumption” as a phenomenon in economic behavior. Perhaps people buy luxury goods not because they are better made, but because they signal success, exclusivity, and taste and therefore help to attain higher social status. Such goods are all about relative positioning and they command a substantial premium in the market.
  • Information revolution. We are flooded with free and easily accessible information that helps us make relative comparisons, such as “likes,” ratings, rankings, and customer comments. More is known about products and their relative positions. There is more criticism, commentary, and opinion-generation. Aggregators of opinion (Fandango average the ratings of critics and fans). Information overload makes one default to the positionally-dominant product—branding pays. IT grants an increased ability to match products and buyers in deep-pocketed markets (e.g. ebay). Increased transparency about social context heightens relative comparisons: think of the close scrutiny drawn by published salaries. The advent of information technology has undoubtedly intensified the winner-take-all phenomenon through transparency that helps one to compare relative positions.

The problems with winner-take-all markets, as Frank and Cook see it, have to do with wasteful investment, overwork to try to stay competitive with peers, or over allocation of talent to a field of marginal benefit to society (how many oboists or hedge fund traders does the world need?) In an effort to cultivate the aura of a “winner” contestants may tend to overinvest in cosmetics, clothes, homes, and lifestyles. Wasteful investment might lead to intensified competition in settings where collaborative effort might be better—the aspirants to the top job in politics or business might behave in ways that make the enterprise or society worse off. This is the familiar “prisoner’s dilemma” problem in which individual incentives yield bad results for the group as a whole.

Now, take a deep breath

It is the notion that the rewards accelerate (“the rich get richer”) that makes the winner-take-all phenomenon a piñata for egalitarians. The fact that the rich get richer—without much more absolute performance—seems unfair. Does the fact that the Gold Medalist beat the Silver by a tenth of a second warrant a much richer payoff for the Gold? Going farther down that path, one might wonder how much of a time difference would justify a greater payoff for the Gold? That’s like asking how much curvature in the payoff graph you would be willing to accept. The fact that people will disagree on the answer makes it very difficult to assert exactly when a market becomes winner-take-all. We are left echoing the words of former Supreme Court Justice Potter Stewart, who opined in reference to obscenity, “I know it when I see it.”

America values equality of opportunity. But strict equality often imposes its own tyranny. And life is full of unfair advantages. You might envy your neighbor’s good looks—do you really feel that society owes you a surgical makeover? Anyway, is the downside of failure in a winner-take-all market always catastrophic? In his seminal article on winner(s)-take-all (“The Economics of Superstars”), Sherwin Rosen wrote,

Too little is made of the option value of occupational risk-taking. Private and social losses are limited by a person’s option to quite competing and try something else. Working life and long and most of the time this information comes fairly quickly. There is compelling empirical evidence…that lawyers who do not make partner in big firms live nicely as partners in smaller ones, that would-be Picassos live useful and rewarding lives as commercial artists, and similarly for just about every high risk occupation. Some people who fail do suffer disastrous consequences, but generally less is at stake in these gambles than meets the eye. (p. 135)

It is argued that winner-take-all markets reveal an inefficiency, a market breakdown. Flawed markets invite government intervention, which Frank and Cook sought to remedy by progressive taxation, “arms-limitation” agreements, and other intrusions. But there is not enough evidence yet to convince an objective judge that this market inefficiency is so costly as to warrant intervention. Anyway, it is hard to imagine what might be the interventions in higher education. Is the NCAA a good model of “arms limitation” in higher education? Is it really all that bad? In reviewing the book by Frank and Cook, John Kenneth Galbraith (himself an opponent of economic inequality) wrote,

The problem is that a good point is carried to extremes—generalized well beyond its reach. This is not a winner-take-all society; rather, it is an economic world in which the case the authors describe plays an interesting but far from dominant role. No wheat grower, no dentist, no housepainter has a dominant position in his or her industry. Athletics, which is the authors’ starting point and to which, rather significantly, they frequently return, is programmed to produce a clear-cut winner; not so for many other activities, even where there is considerable market concentration. I recently looked into the matter of automobile excellence. I came away from the search almost completely innocent as to which might be the best—or the best for me. The fact that so many companies—U.S., Japanese, German, Swedish—all compete and survive goes far to refute the idea that there is any clear winner in automobiles, that there is any serious chance that one will soon take most, let alone all.

As business ethicists usefully remind us, the really chewy dilemmas don’t involve choices between good and evil, but between two goods. In the case of the winner(s)-take-all phenomenon, we see our values of fairness (or social good) pitted against merit (or individual good.) It is argued that the winner(s)-take-all markets divert rewards to the apparent winners on the basis of attributes other than merit and function to the detriment of the also-rans. Here, we confront the definition of “merit” and “detriment” and how they are measured. Again, we are stuck in Potter Stewart-land.

So what?

You can debate the impact of the winner(s)-take-all phenomenon, but I would advise you not to deny its existence or relevance. Business students are making career choices this season. And it looks like the secondary market for talent (judged by headhunter activity) is heating up. Several different entrepreneurs have whispered to me that they are about to launch new businesses. In these and other contexts, relative positioning can matter a lot—and this means that you face potential asymmetric payoffs characteristic of winner(s)-take-all. Such markets are clearly not for the faint-of-heart: the failure rate is very high; the field will likely be crowded; competitors probably overinvest beyond rational bounds; competition may grow intense and even unethical; and ultimately the difference between the winners and the rest may be scant.

I’ll have more to say about the winner(s)-take-all phenomenon in future posts. But here are a few generic questions to consider as you peer into the unknown right now:

  1. In the place to which I’m headed, how important in their evaluation will be will be relative performance versus absolute performance?
  2. On what basis is performance assessed?
  3. In producing such performance, how significant are effects such as reputation/branding, lock-in, status, mass-markets, and deep pockets?
  4. How crowded is the field of competition?
  5. How have the rewards been distributed in the past? How asymmetric is that distribution?
  6. How much transparency is there regarding the distribution of rewards?
  7. And the really big one: How much time, talent, and treasure am I willing to invest in an effort to win?

Jerry Seinfeld’s riff on the Olympics is funny on one level. But as psychologists tell us, there is often a kernel of anger within humor. No doubt, Adam Nelson knows. Nelson (Darden MBA 2008) won the Silver Medal in the 2004 Olympics, in the shot put event. Then, in May 2013, the International Olympic Committee awarded the 2004 Gold Medal to Nelson when it was revealed that the apparent previous winner was guilty of drug doping. The Associated Press quoted Nelson a year ago: “It’s not just a victory for me, but a victory for the system. I can’t dwell on what happened or didn’t happen eight years ago. I can only look forward to what the next phase in life brings. At least now I can do that with a Gold Medal.” Or, as Seinfeld said, “you win the gold, you feel good.”



Living into the challenge: A Reflection on the Life of Dr. Martin Luther King, Jr.

A great deal has been written about how leaders transform those around them. Rather less is said about how transformations change leaders too. The life of Dr. Martin Luther King, Jr. gives an important insight into the latter: one must “live into” one’s challenges. This affords a valuable reflection today, when we honor King’s memory.

In the spring of 1960, Martin Luther King could look back on a few years of struggle against racism and wonder whether it had been worth it. Many of the most transformational changes on which he is known to have had great influence, lay ahead, later in the 1960s—the Civil Rights Act, Voting Rights Act, and War on Poverty, and most importantly a shift in public opinion against racism. As of 1960, King and his followers had made great sacrifices on behalf of their cause. But was it worth it? King took stock of his experience and wrote,

Due to my involvement in the struggle for the freedom of my people, I have known very few quiet days in the last few years. I have been arrested five times and put in Alabama jails. My home has been bombed twice. A day seldom passes that my family and I are not the recipients of threats of death. I have been the victim of a near-fatal stabbing. So in a real sense I have been battered by the storms of persecution. I must admit that at times I have felt that I could no longer bear such a heavy burden, and have been tempted to retreat to a more quiet and serene life. But every time such a temptation appeared something came to strengthen and sustain my determination. [1]

How King confronted the adversity of his calling warrants reflection. He wrote,

My personal trials have also taught me the value of unmerited suffering. As my sufferings mounted I soon realized that there were two ways that I could respond to my situation: either to react with bitterness or seek to transform the suffering into a creative force. I decided to follow the latter course. Recognizing the necessity for suffering I have tried to make of it a virtue. If only to save myself from bitterness, I have attempted to see my personal ordeals as an opportunity to transform myself and heal the people involved in the tragic situation which now obtains. I have lived these last few years with the conviction that unearned suffering is redemptive…. The suffering and agonizing moments through which I have passed over the last few years have also drawn me closer to God. [2]

To borrow a phrase from my friend, Jim Baker, Martin Luther King “lived into” his ordeal. The concept of living into a challenge is hugely important to the development of leaders. To “live into” something is to go beyond intellectualizing it: you must practice it, embrace and accept the consequences, learn from them, and go on. King is not alone in this. Consider three other examples:

  • Gabrielle Giffords lives into her tragic assassination attempt with a new sense of purpose about gun control. She wrote recently: “I’ve spent the past three years learning how to talk again, how to walk again. I had to learn to sign my name with my left hand. It’s gritty, painful, frustrating work, every day. Rehab is endlessly repetitive. And it’s never easy, because once you’ve mastered some movement or action or word, no matter how small, you move on to the next. You never rest. I asked myself, if simply completing a normal day requires so much work, how would I ever be able to fulfill a larger purpose? The killing of children at the school in Sandy Hook a little over a year ago gave me my answer.”
  • Helen Keller lived into her deaf-blind condition by becoming a leading writer and advocate for people with disabilities. She wrote, “Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, ambition inspired, and success achieved….All the world is full of suffering. It is also full of overcoming.”
  • Viktor Frankl found purpose even in helping others in their struggles at Nazi death camps during the Holocaust. In his classic book, Man’s Search for Meaning, Frankl wrote, “We who lived in concentration camps can remember the men who walked through the huts comforting others, giving away their last piece of bread. They may have been few in number, but they offer sufficient proof that everything can be taken from a man but one thing: the last of the human freedoms — to choose one’s attitude in any given set of circumstances, to choose one’s own way.” He added, “If there is meaning in life at all, then there must be meaning in suffering.”

One could cite many other possible examples: Gandhi, Mandela, and Solzhenitsyn, to name a few.

Of all of these exemplars, Martin Luther King explains perhaps best what it means to “live into” a challenge: it is to “transform the suffering into a creative force…to make of it a virtue.” The reason that this is an important lesson is that it illuminates a foundational idea about learning and human development: one grows profoundly through experience rather than observation. The next generation of leaders who have the depth of character and impact of King and other exemplars will likely draw not only from what they learned, but how.

I have written about the types of knowledge one might want to acquire, and how they can best be delivered. Explicit knowledge (names, dates, formulas) is easily absorbed from readings, lectures, MOOCs, simple problem sets, etc. And then there is tacit knowledge, the stuff that is gained by feel. An important aspect of tacit knowledge is that one learns by doing, ideally in collaboration or under mentorship by others. Explicit knowledge can be stored in libraries and on hard drives; tacit knowledge cannot. Skills such as bicycle riding, kneading bread, mastering a musical instrument, suturing a wound, public speaking, interviewing for a job, negotiating and selling reflect tacit knowledge—you can read all you want to about these skills, but you’ll only master them by doing them. In other words, you’ll only master them by living into them.

Martin Luther King was highly educated for leadership; but he really learned to be a transformational leader by living in to the struggle against racism. His example helps aspiring leaders to anticipate their own growth path: find the creative kernel in any struggle; make it a virtue; live into the challenge. This Martin Luther King, Jr. day in 2014, is a worthy moment to pause and reflect on the sources of your own growth.

  1. “Suffering and Faith” Christian Century, April 1960. []
  2. ibid. []
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Integrity and Trust in 2014

The story is told that Theodore Roosevelt was searching for lost cattle one day when he came upon some of his ranch hands about to brand some unbranded strays. Roosevelt pointed out that they weren’t on his own ranchland; they were on his neighbor’s. The rule was that the unbranded stray cattle had to be on your land for you to brand them as yours—without that rule, neighbors would steal from each other. The ranch hands probably replied that no one would know the difference and that they had worked hard enough to find these strays; they wanted to get the branding done and call it a day. They pulled the “TR” brands from the fire and were poised to mark the cows as Roosevelt’s. But Roosevelt fired the ranch hands on the spot. He said, “Anybody who would steal for me would steal from me.” For Roosevelt (and most of us), the ability to trust someone is closely knitted to his or her integrity, as demonstrated in words and actions.

The year, 2013, served up some amazing examples of what Roosevelt worried about: the LIBOR scandal, SAC Capital Advisors and insider trading, Serge Dassault and vote buying, Lance Armstrong and the doping scandal, and Toronto Mayor Rob Ford, for example. These seem like life imitating art: aspects of these cases are reflected in The Wolf of Wall Street, a new movie based on the memoir of Jordan Belfort, who founded a high-pressure brokerage firm in the 1980s and was eventually sent to jail. It’s a story of villainy, brutality, theft, betrayal, fraud, and exploitation, a tragic illustration of how businesses and their leaders can go way way off track. As Roosevelt might say, a great deal of stealing went on, both for and from. (I agree with critic, Joe Morgenstern, that, “I couldn’t wait for the hollow spectacle to end.” It is a memorable tragedy submerged beneath three hours of Martin Scorsese’s overwhelmingly graphic display, meant to titillate, not instruct.)

Most people recoil from the thought of working in Jordan Belfort’s kind of environment. We want to be proud of our place of work. Fortunately, the business world offers a host of counterexamples, companies that talk openly about the importance of ethical behavior and then walk the talk. You can find examples of these companies in published lists of trustworthy companies at Forbes/Audit Integrity, Ethisphere, and at Trust Across America (TAA). Two companies led by Darden alums rank in the top ten in the latest TAA listing: Tom Watjen (D’81) is the CEO of Unum Group; John Strangfeld (D’77) is the CEO of Prudential Financial. And many other Darden alums create trustworthy environments, be they leaders of a company, a division, or a small team. Warren Buffett annually reminds employees at Berkshire Hathaway how vitally important are ethics and integrity in all they do. He wrote, “We can afford to lose money. We can afford to lose a lot of money. But we cannot afford to lose one shred of our reputation. Make sure everything you do can be reported on the front page of your local newspaper written by an unfriendly, but intelligent reporter.”

Implications for Business Schools

Schools have a role in producing a business society of our aspirations, mainly through the caliber of people they graduate. A great education should consist of growth in knowledge, skills, and character. Some people would suppose that b-school should just be about knowledge and skills. Wrong. To build a society of trust and integrity, we must talk openly about values and expectations. Unless we want a society of Jordan Belforts, we should aim to shape the character of our students. Education is manifestly a moral activity. But in Excellence without a Soul, Harry R. Lewis, a former Dean of Harvard College, wrote that universities have drifted into a rather technocratic and narrow sense of mission:

… you will see plenty of talk about the world’s problems, about the pursuit of knowledge, about hard work and success. Rarely will you hear more than bromides about personal strength, integrity, kindness, cooperation, compassion, and how to leave the world a better place than you found it. The greater the university, the more intent it is on competitive success in the marketplace of faculty, students, and research money. And the less likely it is to talk seriously to students about their development into people of good character who will know that they owe something to society for the privileged education they have received. (Page xiv).

The alternative is to give real emphasis to character development, a strengthening of attributes such as integrity, empathy, work ethic, social awareness, and emotional intelligence. This emphasis should be at the core, not the periphery of the curriculum. And it should offer a compelling view of how faculty and staff members should engage with students. I was granted a vision of this by one of my own mentors in graduate school, Professor C. Roland Christensen. He wrote,

I believe that teaching is a moral act. I believe that what my students become is as important as what they learn. The endpoint of teaching is as much human as intellectual growth. Where qualities of persona are as central as qualities of mind—as is true in all professional education—we must engage the whole being of students so that they become open and receptive to multiple levels of understanding. And we must engage our whole selves as well. I teach not only what I know, but what I am. (“Every Student Teaches,” pgs. 116-117.)

Ultimately, schools should model what it means to be a community of trust and integrity. For better or worse, schools serve as powerful examples for their students. Simply by modeling positive attributes, they help to build graduates of whom they can be proud.

Our Approach at Darden

Every school is a work in progress. To be a community of integrity is not a once-and-done decision, but is the result of thousands of choices made every day. I don’t claim that everyone at Darden makes these choices perfectly. But it seems easy for us to talk openly about character, integrity and trust. We have a student-run Honor Code that the faculty respect. We offer a required and graded course on Business Ethics, along with numerous electives. We have an expectation that the faculty will not shrink from exploring ethical dilemmas no matter what one’s field of teaching might be. Our centers and faculty in business ethics are thought-leaders in scholarship and curriculum development. We share expectations that create a community of trust. The Darden Mission Statement commits us to “developing and inspiring responsible leaders.” Darden’s Statement of Norms says that “We act with integrity: we do what we say.” The Board of Visitors of the University endorsed the University Code of Ethics. It states that, “We do not condone dishonesty in any form by anyone.”

The Darden Community rallies behind the values embedded in the Mission, Norms, and Code for at least three reasons:

  • We want to create a sustainable legacy for Darden. To incorporate ethics into our workplace mindset is to think about the kind of community that we would like to live in, and that succeeding generations will inherit.

  • Ethical behavior builds trust and dividends of trust are valuable.The foremost dividend is an unimpeachable reputation. Equally important, ethics and trust build strong teams and strong leadership. Stronger teams and leaders result in more agile and creative responses to problems. Ethical behavior contributes to the strength of teams and leadership by aligning employees around shared values, and building confidence and loyalty.

  • Darden can’t afford the costs of doing otherwise. We cannot afford to lose one shred of our reputation; we cannot afford to lose one talented member of our community, applicant, or corporate partner over an ethical lapse; and we cannot afford to lose our self-confidence and self-respect.

Annually at the start of the calendar year, I ask the faculty, staff, and students to reaffirm our vision and our commitment to walk the talk—and I do so again, here in January, 2014. We expect each other to manage, study, lead, and work with integrity. This entails three commitments:

First, at a personal level, make a commitment to go the extra mile for what’s right.  Mahatma Gandhi said, “You must be the change you want to see in the world.”    If we want a community of trust and integrity, we must live that vision.

Second, encourage others around you to do what’s right. We are not an “anything goes” community. We have mutual expectations for exemplary behavior. No number of messages from the Dean can match the impact of peer expectations. A community is only as strong as its most vulnerable link. Help those who may be headed in the wrong direction. Speak up for our values.

Third, if you see something, say something. Silence implies consent. The UVA Honor System provides representatives with whom students and professors can share their concerns on a confidential basis. Similarly, faculty and staff members can share concerns with senior leaders, me, Brad Holland, University Ombudsman (434- 924-7819, ombuds@virginia.edu), and/or Barbara Deily, Chief Audit Executive of the University (434-924-4110, deily@virginia.edu). The mark of a good organization is not that it never has ethical lapses, but rather what it does about them. At Darden we must get the facts and take appropriate action as fast as possible.


A visitor at one of Darden’s admissions events once challenged me: “Dean you talk and blog so much about integrity…does Darden have an ethics problem?” I replied, “I like to think that we don’t have an ethics problem precisely because we do talk and blog about integrity.” Perhaps something I said resonated with him: he applied, was admitted, graduated, and now spreads the word about Darden. High-performance organizations take integrity seriously—they talk about it regularly, often starting with the CEO. It is never too early or late to talk about integrity. People get distracted, confused, or forgetful. We can all use conversational reminders about what is important. Darden is, and aspires to remain, a high-performance organization; for us, striving to be a community of integrity is not an afterthought; it is where that high performance starts from.

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2013 Book Recommendations

“I cannot live without books.” (Thomas Jefferson to John Adams, June 10, 1815)

This is my annual moment to channel UVA’s founder, Thomas Jefferson: Read more books! Effective leaders are sponges for new ideas and self-instruction. Therefore, anyone who aspires to make a difference in the world should read widely as a foundation for her or his growth in leadership. Blogs, newspapers, and magazines are important too (for my current reading of these, see this); but books are essential. In books, you gain a fuller development of an author’s argument, more detail and evidence, and most important, a greater chance for serendipity and the connect-the-dots “Aha!” in which you create new meaning. Give yourself a break: read a book. Here are some books that rocked my world over the past 12 months.

Since the Global Financial Crisis in 2008, pundits, provocateurs and politicians have argued that the world has changed in some fundamental way and will never be the same again. The implication is that we need to shed our old assumptions and get with the “new normal.” I’ve blogged about this in 2013 (see this, this, and this). Tyler Cowen’s, The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, is a well-written and closely-argued assertion that America’s Golden Age (roughly 1945-1970) is gone. Since the 1600s, America has enjoyed the “low-hanging fruit” of free land, immigrant labor, and transformational technologies. He says that now we can only look forward to lower rates of growth and social mobility. I’m not entirely convinced that the future is as bad as he sees it. Just when conventional wisdom throws in the towel, growth picks up—the late 1970s are one example. Still, The Great Stagnation is a very stimulating read.

Stephen Greenblatt’s, The Swerve: How the World Became Modern, claims that the Renaissance began with the discovery in 1406 of On the Nature of Things, by Lucretius, a Roman poet-philosopher. Lucretius advanced ideas such as the theory of the atom, heliocentrism, free will, and atheism. Greenblatt argues that the steady dissemination of Lucretius cracked the stranglehold of feudalism and Church dogma and triggered a new wave of scientific inquiry, political upheaval, the Reformation, cultural liberalization, the Enlightenment, and the Declaration of Independence. At the close of the book, Greenblatt links the ideas of Lucretius to Thomas Jefferson. In short, modernity began with the rediscovery of Lucretius and the ideas he articulated. That’s a sweeping claim, which I wish Greenblatt had anchored in a host of research on other forces that promoted the swerve to modernity (new technology, exploration, climate change, etc.) But the book is a very well-written brief for culture and the humanities as forces for change. Very relevant to business leaders who may be wondering about the impetus for some future “swerve”.

Two books challenge conventional wisdom on the causes and nature of the Great Depression—highly relevant to shaping our critical perspective on the problem of slow economic growth today.   Robert Higgs, Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity argues that the length and depth of the Great Depression were caused by under-investment by the private sector, which in turn was caused by uncertainty about the government’s new regulatory regime. Through the 1930s, President Franklin Roosevelt rolled out waves of new regulations, new taxes, and red tape; and business leaders hunkered down in confusion. Higgs writes, “The insufficiency of private investment from 1935 through 1940 reflected a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns. This uncertainty arose, especially, though not exclusively, from the character of the actions of the federal government and the nature of the Roosevelt administration.” This account of the Great Depression gives rather little attention to other possible causes or the possible benefits of government intervention. But there’s a plausible argument to be made that regime uncertainty is an important cause of relatively low investment in new plant and equipment today.  This next book is extremely well argued and documented, though to the lay reader it will seem technical and wonkish, a hard slog; but if you give the book the time and attention it deserves, you will be well-rewarded. Alexander J. Field’s, A Great Leap Forward: 1930s Depression and U.S. Economic Growth presents the astonishing claim that the 1930s in America were an episode of great innovation and advancement in productivity. Field wrote, “It was not principally the Second World War that laid the foundation for postwar prosperity. It was technological progress across a broad frontier of the American economy during the 1930s. Because of the Depression’s place in both the popular and academic imagination and the repeated and justifiable emphasis on output that wasn’t produced, income that wasn’t earned, and expenditure that didn’t take place, it will seem startling to propose the view that the years 1929-1941 were, in the aggregate, the most technologically progressive of any comparable period in economic history. This hypothesis entails two primary claims: first, during this period businesses and government contractors implemented or adopted on a more widespread basis a wide range of new technologies and practices, resulting in the highest rate of peacetime peak-to-peak total factor productivity growth in the century, and second, the Depression years produced advances that replenished and expanded the stock of unexploited or only partially exploited techniques, thus providing the basis for much of the labor and total factor productivity improvement in the 1950s and 1960s.” I cited this book in my webinar, “Desperately Seeking Growth” and challenged the audience to consider whether and where during the recent economic malaise technological advance was laying the foundation for future growth.

The U.S. has actually had at least three economic depressions: the “Great Depression” (1929-1940), the “Long Depression” (1872-1879) and a depression that lasted from 1837 to about 1848. When conventional wisdom thinks of economic depression, it summons up the 1930s. Yet the other two depressions were whoppers as well. Alasdair Roberts’ America’s First Great Depression: Economic Crisis and Political Disorder after the Panic of 1837 gives an excellent account of the awful wreckage—and of the recovery unaided by government pump-priming and fueled by the California gold strike. To learn more about the “Long Depression,” I recommend 1877: America’s Year of Living Violently by Michael Bellesiles. By focusing on the nadir of that depression, the author weaves an extraordinary story of violent labor strikes, extreme poverty, and social strain. These two books give a sobering reminder that the stresses associated with our Global Financial Crisis and Great Recession are the rule, not the exception, of economic calamities. Severe economic inequality prompted the rise of organized labor after 1877. The Tea Party and Occupy Wall Street echo the surge of various populist movements. The rise of Golden Dawn in Greece recalls the rise of the Nazis in the 1930s and of racist and anti-immigrant parties in American depressions. As Mark Twain said, “History may not repeat itself, but it rhymes.”

My UVA colleague, Professor Gary Gallagher, once told me, “You cannot fully understand America today without learning American history of the 19th Century.” For instance, America was the world’s high-growth emerging economy during the so-called “Gilded Age,” the 35 years following the Civil War. The economic expansion of those years laid the foundation for America’s economic leadership in the 20th Century. It is also true that those years give a picture of what “unfettered capitalism” looks like: buoyant, turbulent, and Darwinian. In pursuit of insights about this era, you should tuck into American Colossus: The Triumph of Capitalism 1865-1900 by H.W. Brands. The book spares no criticism of people (Morgan, Carnegie, Rockefeller, and Ford) or events. But Brands concludes, “The capitalist revolution was in many ways the best thing ever to befall the ordinary people of America.”

One of the intellectual giants of the late 19th Century in America was William James, a professor at Harvard. He was a physician, one of the founders of the field of psychology, and a philosopher, associated with the pragmatist school. A year ago, I read James’ Varieties of Religious Experience—his notion of the person “born again” through a faith experience is a foundational example of interpretive psychology. This led me to acquaint myself with the author. So I turned to Robert D. Richardson’s William James: In the Maelstrom of American Modernism. Richardson argues that William James was part of the tipping point of intellectual culture from Victorianism into modernism. This is an outstanding example of deep biography: very well-written and documented.

Another party to the tipping point of modernity at the close of the 19th Century would be Albert Einstein. Walter Isaacson’s Einstein is a highly readable biography (I’m a fan of Isaacson’s and also recommend his biography Steve Jobs.) Having discovered the theory of relativity in his twenties, Einstein struggled the rest of his life with fame, and the effort to link the various theories of physics into a General Field Theory. His struggle is a worthy reminder to business leaders about the difficulties of scientific discovery and of the personalities that engender them.

I enjoyed Good Prose: the Art of Nonfiction; Stories and Advice from a Lifetime of Writing and Editing by Tracy Kidder and Richard Todd for their brilliant perspectives on memoirs, narratives and essays. This book is essentially a dialog between Kidder and his long-standing editor, Richard Todd. For instance, this: “Self-exploration, including confession, almost always involves other people. Some of them are bound to be offended by an honest memoir. But the good and honest memoir is neither revenge nor self-justification, neither self-celebration nor self-abnegation. It is a record of learning. Memoirs, by definition, look backward. They are one response to Kierkegaard’s dilemma that life can only be understood backward but must be lived forward.” I’ve enjoyed Tracy Kidder’s writing ever since reading his Soul of a New Machine over 30 years ago—and I recommend that book too.

Last year, I recommended Personal Memoirs by President Ulysses S. Grant. He stands as one of the more problematic American Presidents. On one hand, he was a brilliant general, who brought the Civil War to conclusion. Grant’s philosophy of battle was straightforward: “Find out where your enemy is. Get at him as soon as you can. Strike him as hard as you can and as often as you can, and keep moving on.” On the other hand, his Presidency was marred by corruption among his associates. In the periodic rankings of Presidents, Grant would typically wind up in the basement. But in recent years, historians have reassessed the man and his impact arriving at a more positive conclusion. This year, I read two very good biographies of Grant—simultaneously. I did this to gain insights not only about Grant, but also about the craft of historians and biographers: what details should be included? How should the story be told? And ultimately, what is the historian’s judgment and on what is it based? Grant, a leader of many strengths and dark psychological complexity is an excellent study for anyone interested in how one learns and wields leadership. I highly recommend both biographies: Jean Edward Smith’s, Grant, and H.W. Brands’, The Man Who Saved the Union: Ulysses Grant in War and Peace.

Civilian control of the military is fertile territory for thinking about effective governance and qualities of leadership: how should general managers lead technical experts?  The Generals: American Military Command from WWII to Today by Thomas Ricks is a very good starting point. Ricks argues that America’s great wartime Presidents frequently cashiered generals who failed to deliver results. But starting with the Vietnam War, Presidents grew lax and general command became an entitlement for years in service. Ricks is unstinting in his damnation of incompetents or praise for great leaders. His profile of Marine General Chesty Puller and the heroic stand at Chosun Reservoir in the Korean War is inspiring. Ricks’ conclusions about generals are highly relevant for business leaders: “Having adaptive, flexible military leaders who also are energetic, determined, cooperative, and trustworthy is probably more important now than it has been at any time…Tolerance of below-average performance has a corrosive effect on the quality of leadership…carry out a cultural shift that enables (the organization) to embrace accountability, rather than shun it…We also should reward commanders who cultivate and maintain cultures in which their subordinates feel free to exercise initiative and speak their minds freely… abide by the belief that the lives of soldiers are more important than the careers of officers—and that winning wars is more important than either.”

Vigilance, attention to detail, meddlesomeness, critical thinking, urgency, and fearless challenge to common assumptions—these and other qualities stand out as distinguishing excellent wartime civilian leaders. Martin Gilbert’s Winston Churchill’s War Leadership, profiles a civilian leader who infuriated the top brass with his pushiness into areas they deemed their special province of expertise. Elliot Cohen’s, Supreme Command: Soldiers, Statesmen, and Leadership in Wartime, affirms this portrait of Churchill and adds chapters on other exemplary wartime civilian leaders, including Abraham Lincoln, Georges Clemenceau, and David Ben-Gurion. This book challenges the conventional thinking that civilian leaders should set policy goals and leave it to the military leaders to implement. The profile of these four leaders is highly relevant to enterprise leadership in the private sector. Cohen wrote, “Extreme circumstances…enable us to see more clearly what great leaders do and of what they are made. If one wishes to study the finest steel, best to search for the hottest furnace.”

Defense procurement in peacetime may seem like an unlikely venue in which to consider leadership. But it illustrates that leadership is not just about command; it must also be about policy, process, and politics. In a farewell address in 1959, President Eisenhower warned against the rise of the military-industrial complex—today, we think of it as the “iron triangle” of interdependence of interests among the Pentagon, Congress, and defense contractors. James Ledbetter’s Unwarranted Influence: Dwight D. Eisenhower and the Military-Industrial Complex, will persuade the reader that Presidential control of military procurement is incredibly difficult. The politics, process, and policy of defense procurement as they affect leadership are especially relevant today, in the face of budget cuts in the Federal Government. I wish that the author had addressed the geopolitical implications of maintaining America’s status as the sole superpower. Maintaining the industrial base necessary to support the defense posture of the country is “table stakes” for hegemony. If there’s a better way to organize and control defense production, Ledbetter doesn’t say. Still, I recommend the book as a stimulus for business leaders to consider the impact of complicated currents of interest at the interface of the public and private sectors.

The humor columnist, Dave Barry, once wrote, “The world is full of strange phenomena that cannot be explained by the laws of logic or science. Dennis Rodman is only one example.” Business offers others. As an assignment in our student seminar this fall, we read Barbarians at the Gate: The Fall of RJR Nabisco, by Bryan Burrough and John Helyar. It’s a “must read” for novices in Mergers and Acquisitions. The book recounts the bidding war to control RJR Nabisco in 1990. I have used the story to teach concepts in the area of auctions and negotiations as well as a host of behavioral phenomena, such as deal frenzy. Barbarians reads like a gripping soap opera—again, Dave Barry said, “you can’t make this stuff up.” I have heard that some protagonists denied having said some of the things attributed to them in the book. But even as fiction, the book reminds business professionals that a toxic mix of incentives and emotions can lead to nasty behavior: deception, power plays, betrayal, venality, and self-dealing. I’m sometimes asked by business schools should teach ethics. This book shows that even late-age adults can use ethical reminders. As the Renaissance maps of the world would indicate about distant regions, the book tells us, “here be dragons.”

I read The Old Man and the Sea by Ernest Hemingway in connection with a visit to Cuba. The book captures the atmosphere there and tells a remarkable story of determination by an unlucky old fisherman who is suddenly faced with reeling in the biggest catch of his life. The moral of the story is best summed up by this quotation: “But man is not made for defeat,” he said. “A man can be destroyed but not defeated.” Hemingway was deemed past his peak when he wrote the book; yet Old Man and the Sea was instrumental in him winning the 1954 Nobel Prize in Literature. A quick and inspiring read.

Bonus Recommendation: This evening, I saw the movie, The Book Thief. It considers the value of books and writing in the context of the rise and fall of Nazi Germany. Strong story and excellent acting. I recommend it.

Department of “Huh?” Yesterday, the Wall Street Journal reported that “adults are gobbling up books aimed at middle-schoolers.” Good enough if such books are the likes of Huckleberry Finn and Grapes of Wrath. But teeny romance novels and such don’t give a very high return on reading. As I’ve advised in each of my annual book recommendations, don’t read junk. There is so much good material to read; life is short. Start with the best.

I hope these recommendations are helpful. Read and enjoy. Better yet, read and grow as a leader.


2013: A Turning Point for Investors?

On November 14-15 (this Thursday and Friday) Darden will host the sixth annual University of Virginia Investing Conference (UVIC). As we get ready to welcome the world-class speakers and participants, we look forward to insights on a range of questions relevant to investors, business executives, faculty, and students.

Over the years we have enjoyed robust attendance at the conference. Participants tell us that they seek fresh ideas from speakers about current conditions and the future outlook. And participants gain opportunities to network at our receptions and breaks. An important role that universities play is to convene and debate differing perspectives. Every year, the financial markets offer fresh puzzles, which means that each new conference holds fresh insights for decision-makers. We welcome the several hundred registrants who will come to our Grounds—a few walk-in places remain for the procrastinator.

Here are some focal questions for speakers and participants at this year’s conference.

1. Is 2013 a pivot-point or a head-fake? In the graph that follows, you see the level of the S&P500 Index and the yield on the 10-year Treasury Bond at each of the dates of our UVIC. At UVIC 2012, the speakers were especially down-beat about the future of investing. But something remarkable happened in equities in 2013: the S&P500 Index returned to levels last seen before the Global Financial Crisis. Note also that yields on 10-year Treasury bonds edged upward, probably in anticipation of the Fed’s “tapering” away from quantitative easing. Are these results for 2013 just aberrations, or are they the beginning of a trend?


2. Is the market’s current buoyancy rooted in reality? Think of Twitter’s recent blow-out IPO. In 2013, Michael Dell took his namesake company private for $24.4 billion; Warren Buffett bought H.J. Heinz for $23 billion; Publicis and Omnicom announced a merger at $35.1 billion; and Verizon bought out Vodaphone’s share of a joint venture for $130 billion. What do these players see in the fundamentals that the rest of us may not be seeing? The glaring dampener to any assertion about the market’s rise are the following graphs, which show that the recovery of jobs from the recent recession is agonizingly deeper and slower than any post-WWII recession.



3. Is the economy in a financial “bubble” again? The concept of a market “bubble” is gaining currency again. In previous posts I have written about bubble “mentions” (see this, this, this, and this). Our speakers will be well-suited to comment on bubble concerns.

4. Whether or not the financial markets are pivoting, what will be the attractive sectors and industries for the foreseeable future? In contrast to earlier UVICs, we have asked our speakers not only to sober us up with the harsh reality of the day, but also to suggest where might be the opportunities to earn positive returns in this environment. Accordingly, we are convening sessions on specific sectors, including energy, technology, and alternative assets.

These questions bespeak fundamental issues about asset allocation, stock picking, and risk management. The speakers will be most enlightening. Join us.

Guest Speakers Will Include:

Keynote Addresses:

Endowment Panel:

  • Larry Kochard, Chief Executive Officer and Chief Investment Officer, UVIMCO
  • Donald W. Lindsey, Chief Investment Officer, The George Washington University
  • Scott Malpass, Vice President and Chief Investment Officer, University of Notre Dame
  • D. Ellen Shuman, Former Vice President and Chief Investment Officer, Carnegie Corporation

Energy Panel:

Technology Panel:

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Why study business and economic history?

“Mr. Ford replied that he did not believe in history, that history was of the past and had no bearing upon the present and that, there being nothing to be learned from it, history need not be studied nor considered. The American Revolution he refused to have touched upon, saying that the Revolution was " tradition," that he did not believe in tradition.” New York Times, May 15, 1916.

“I don’t know much about history, and I wouldn’t give a nickel for all the history in the world. It means nothing to me. History is more or less bunk. It’s tradition. We don’t want tradition. We want to live in the present, and the only history that is worth a tinker’s damn is the history that we make today.” – Henry Ford, Chicago Tribune, May 25, 1916.

Is history “bunk”? Henry Ford’s famous comment was not just a casual afterthought. He made similar statements to the press at least two other times, on June 6, 1916, and October 28, 1921, when he dispensed with the qualifiers and simply said, “history is bunk.” It is ironic that by 1916, Ford was 52 years old and had lived long enough to accumulate plenty of personal history. Not known for mild opinions, Ford was also known for isolationist, pacifist, racist, anti-semitic, and conspiracy theory views. Along with “that huge Mississippi of falsehood called history,” (Matthew Arnold), “live for the moment,” (Monster Magnet), and “history will teach us nothing,” (Sting), “history is bunk” stands as one of the convenient justifications for myopic thinking. Why study history? In particular, why should business students and practitioners study business and economic history?

Popular thinking suggests that what has happened before is likely to happen again and that therefore knowledge of history can prepare you for what’s coming, much like wearing seatbelts in a car. Mark Twain held that “History may not repeat itself, but it does rhyme.” Some people who live long enough claim to have a sense of déjà vu: “Uh oh, these economic conditions feel familiarly like a recession.” To the extent that history repeats or rhymes, the lessons from one episode may be relevant to the next. The philosopher, George Santayana, asserted that, “when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.” But the sheer variability of human experience over time challenges the notion that history truly repeats or rhymes. We need a better reason to study business and economic history.

Our view is that an understanding of context is vital to an understanding of the present and an outlook on the future—and context to a significant degree is history. Studying history provides a better understanding of how the present evolved out of the past and how the future is in a process of evolving out of the present. This ability to learn from the past is a foundational skill and requires business leaders to make sense of the context of problems and opportunities facing the organization. In the words of John Maynard Keynes, understanding context requires the leader to “…contemplate the particular in terms of the general” because a model or methodology that may have worked very well in some historical context, might fail in today’s framework. Thus, it would be foolhardy to define “context” as just the present moment. Instead, everything we know about the present context is shaped hugely by history, that is, how we got to the present.

In their book, In Their Time: The Greatest Business Leaders of the 20th Century, Nitin Nohria and Anthony Mayo point to the role of contextual intelligence as a means of understanding great business leaders. They discovered that there was a co-evolutionary relationship between the actions of business leaders and the contextual landscape in which they operated; each influenced and shaped the other. The environmental factors that they highlight—demographic shifts, technological breakthroughs, government regulations, geopolitical forces, labor movements and societal norms—coalesce to create a contextual framework for business and society. Within each decade of the twentieth century, these factors ebbed and flowed, coalescing in unique combinations. A business executive‘s ability to make sense of his or her contextual framework and harness its power often made the difference between success and failure.

Why should a current (or prospective) business leader study history? Knowing business history is important for the development of business leaders. History builds a capacity to assess any context. It widens the leader’s frame of reference. It yields insights into the development of the global economy, of industry structures, and of business strategies. It illuminates government-business relations, technology, corporate culture and business ethics. And it strengthens the capacity to anticipate what might be coming over the horizon or around the corner. Quite simply, history builds a frame of reference for the leader to understand the world.

Toward the end of his life, Henry Ford moderated his views on history. In response to his widely quoted 1916 interview in the Chicago Tribune, that newspaper called him an “anarchist.” He sued for libel. The court found for the plaintiff, but awarded him only six cents in damages. In court, he had been publicly humiliated for his lack of formal education, which prompted him to reflect on the possible lessons of history.

He later confessed, “As a young man, I was very interested in how people lived in earlier times; how they got from place to place, lighted their homes, cooked their meals and so on. So I went to the history books. Well, I could find out all about kings and presidents; but I could learn nothing of their everyday lives. So I decided that history is bunk…I am going to start up a museum and give people a true picture of the development of the country. That is the only history that is worth observing, that you can preserve in itself. We’re going to build a museum that is going to show industrial history, and it won’t be bunk.” With that, he founded the Henry Ford Museum and Greenfield Village in Dearborn, Michigan, one of the best repositories of industrial history in the world.

This article was co-authored by Robert Bruner, Dean of the Darden School of Business, and Rohan Poojara, a second-year student at Darden. The two of us are engaged in a business history reading seminar this year along with eight other students and two other instructors.


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